Centrica raises cash for BE stake

31 October 2008

Centrica has moved to raise £2.2 billion ($3.5 billion) towards the 25% stake it wants to buy in British Energy, which is at the centre of plans for four new reactors in the UK.

Almost 1.4 billion new shares in Centrica are being issued at 160 pence each, with existing shareholders gaining the right to buy three new shares for every eight existing shares they own. The £2.2 billion Centrica would raise is earmarked to go towards taking 25% in Lake Acquisitions, the company that bought British Energy on behalf of Electricité de France in September. However, that purchase would cost a total of £3.1 billion ($5.0 billion), based on the price EdF paid, and Centrica intends to make up the remainder by taking on debt and selling assets.

Sizewell B. Centrica would take a 25% stake in this unit as well
as in four planned Areva EPR units (Image: British Energy)

Centrica was careful to note that a commitment to spend the money on a stake in BE had not yet been made - discussions continue with EdF. The company said that if for some reason the purchase was not made, it would then think about what to do with its new pile of cash.

One option would be for Centrica to throw a recession-busting end of year party, but it is more likely the company would use the funds to further its vertical integration, which was a major factor in the decision to purchase a stake in BE.

Centrica operates as a gas and electricity supplier to 15.6 million customers across Britain, sourcing some of the gas from its own resources in the North Sea and generating electricity in gas-fired power stations. The company said that its exposure to short-term movements in wholesale gas prices has sometimes caused it to lose out to more vertically-integrated companies in the UK's deregulated market.

"Lower wholesale gas price exposure can be achieved through the acquisition of gas production assets or power generation assets where the input fuel is not natural gas. Therefore, one way of addressing this strategic priority is to acquire nuclear generation assets."

While Centrica wants to diversify its sources of energy, the British government would be pleased to see the diversity in the ownership of BE, a major plank in the future of nuclear energy in the country. Most of BE's nuclear assets originated in national nuclear programs after the UK pioneered nuclear power, and the purchase of these by a French state-owned company opened avenues for criticism.

EdF intends to use BE and its sites as a vehicle to build at least two pairs of 1600 MWe EPR power units, Sizewell C and Hinkley Point C. Meanwhile, another major player in the UK nuclear market, EOn, would like to build EPRs, and a consortium is expected to emerge soon to build Westinghouse AP1000 units.